Super withdrawals gain on inflows

The ratio of superannuation withdrawals to contributions has reached a record high, underscoring the need for funds to monitor their liquidity levels and putting pressure on the wealth industry to create a wider array of retirement products.

Net inflows into super for the three months to September were just $5.2 billion, the lowest since the Australian Prudential Regulation Authority started collecting data in 2004. The figures suggest that although more money is pouring into Australia’s $1.5 trillion super system than is being withdrawn by retirees, the gap is closing.

Fiona Reynolds, chief executive of the Australian Institute of Superannuation Trustees, blamed the fall in net inflows in the September quarter partly on the lowering of annual contribution caps and the ageing population. Total contributions fell to $19.6 billion from $19.9 billion a year ago.

“People can’t put as much money in," said Ms Reynolds. “We are at the point where the baby boomers are getting to retirement age."

AFR
AFR

David Knox, a partner of consultancy firm Mercer, agreed that the lower contribution caps as well as regulatory uncertainty were having “some impact" on the amount of money high income earners in particular were prepared to inject into super.

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In 2009-10, the annual contribution limit for individuals under the age of 50 halved to $25,000. For savers over the age of 50, the annual cap has halved from this year, also to $25,000.

Lower inflows mean that funds will need to ensure they have enough assets that can be sold readily to meet withdrawals.

“Funds will need to be looking at liquidity issues," said Ms Reynolds, although she said there was no cause for concern now. “There is nothing to panic about just yet," she said.

Evidence of a decline in inflows came as
Australia and New Zealand Banking Group
re-launched its no-frills, low cost Smart Choice Super product aimed at savers who do not use financial planners and want cheap, transparent investments.

The updated version of Smart Choice is nearly half the price of the original, charging 0.5 per cent a year plus a maximum administration fee of $50.

“We wanted to be much more competitive on the value front," said Joyce Phillips, chief executive of ANZ Global Wealth and Private Banking.

The original product attracted just 6000 savers, all of them customers of the bank.

Ms Phillips, who is scheduled to update the industry on ANZ’s wealth strategy next Wednesday, said the bank wanted to learn from the original product and improve the technology and the overall customer experience.

“Now we will talk to a broader audience," she said.

ANZ Smart Choice offers savers the choice of investing in a life-cycle fund, where the asset mix changes every year as the member gets older, or in individual asset classes, such as Australian equities, international equities, property or cash.

Customers can access their super balances through mobile telephones or tablets.